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Income Taxes
 12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The following table summarizes the loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture.
 Years Ended December 31,
 202120202019
United States$(35,325)$(146,963)$(31,760)
Foreign12,883 (5,125)(365)
Loss from continuing operations before benefit (provision) for income taxes and share of net income from joint venture$(22,442)$(152,088)$(32,125)
The following table summarizes total income tax expense (benefit) recognized in each year.
Years Ended December 31,
202120202019
Current taxes:
U.S. Federal$(19)$(299)$(5,948)
State(615)4,599 1,656 
Foreign3,014 2,250 2,247 
Total current tax expense (benefit)2,380 6,550 (2,045)
Deferred taxes:
U.S. Federal$(8,421)$(10,368)$(1,430)
State(1,099)(5,368)3,850 
Foreign(154)(1,852)522 
U.S. federal and foreign valuation allowance5,538 2,066 (592)
Total deferred tax expense (benefit)(4,136)(15,522)2,350 
Total income tax expense (benefit)$(1,756)$(8,972)$305 
The following table presents a reconciliation of income taxes based on the U.S. federal statutory income tax rate.
Years Ended December 31,
202120202019
U.S federal statutory income tax rate21.0 %21.0 %21.0 %
Change in valuation allowance, exclusive of state(20.0)%(1.3)%1.8 %
State taxes, net of federal taxes, exclusive of tax reform4.5 %0.2 %(13.6)%
Non-U.S. earnings taxed at different rates3.0 %1.4 %3.0 %
GILTI(6.0)%(0.1)%— %
Goodwill impairment— %(12.7)%— %
Nondeductible asset loss— %— %(2.2)%
Research and development tax credit2.3 %0.4 %2.2 %
Change in uncertain tax positions0.7 %2.2 %4.3 %
Impact of 2019 Treasury regulations— %— %(18.4)%
CARES Act— %2.7 %— %
Return to provision0.8 %(0.5)%(0.2)%
Taxes on unremitted foreign earnings2.0 %(3.9)%(2.2)%
Restructuring gain— %(2.6)%— %
Intercompany lending(5.3)%— %— %
Warrant revaluation6.5 %— %— %
Other adjustments, net(1.7)%(0.9)%3.3 %
Effective tax rate7.8 %5.9 %(1.0)%
Our effective tax rate for continuing operations was 7.8% for 2021. The 2021 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21% primarily due to the impact of our valuation allowance change during the year.
Our effective tax rate for continuing operations was 5.9% for 2020. The 2020 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21% primarily due to (1) the impact of the impairment of nondeductible goodwill which is treated as a permanent difference and (2) the accrual of taxes on unremitted earnings of foreign subsidiaries which may be repatriated.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted. Among other provisions, the CARES Act allows for the carryback of certain tax losses and favorably impacts the deductibility of interest expense and depreciation. The CARES Act had a material impact on our consolidated financial statements, primarily due to a higher enacted federal rate in the carryback periods, and has been accounted for in the benefit for income taxes for the year ended December 31, 2020.
On October 6, 2020, we sold our Life Sciences business via a sale of our equity interest in Precision Engineered Products Holdings, Inc., a wholly owned U.S. domestic subsidiary. Prior to the sale, we completed tax restructuring in which Precision Engineered Products Holdings, Inc., distributed to NN, Inc., all of its asset and equity holdings related to the Power Solutions segment. The restructuring process created a deferred gain, required to be realized upon the third party equity sale, equal to the fair market value of the distributed assets over tax basis. The associated U.S. federal, state, and foreign tax impacts are reflected in the tables within this footnote.
Our effective tax rate for continuing operations was (1.0)% for 2019. The 2019 effective tax rate for continuing operations differs from the U.S. federal statutory tax rate of 21% principally due to a discrete tax charge of $6.0 million related to final tax regulations published by the Department of the Treasury and Internal Revenue Service on February 4, 2019. The tax rate was also impacted by valuation of its state tax attributes.
The following table summarizes the principal components of the deferred tax assets and liabilities.
As of December 31,
20212020
Deferred income tax liabilities:
Tax in excess of book depreciation$25,732 $27,459 
Intangible assets20,812 23,695 
Operating leases10,473 11,149 
Interest rate swap37 — 
Taxes on unremitted foreign earnings5,630 6,601 
Other deferred tax liabilities1,007 533 
Total deferred income tax liabilities63,691 69,437 
Deferred income tax assets:
Interest expense limitation7,141 3,811 
Goodwill24,262 25,653 
Inventories3,368 3,224 
Interest rate swap— 3,611 
Pension and personnel accruals2,422 2,909 
Operating leases12,834 13,209 
Net operating loss carryforwards23,629 18,659 
Unrealized losses2,143 1,529 
Credit carryforwards3,044 3,574 
Accruals and reserves1,435 2,399 
Other deferred tax assets2,080 1,362 
Deferred income tax assets before valuation allowance82,358 79,940 
Valuation allowance on deferred tax assets(25,809)(21,681)
Total deferred income tax assets56,549 58,259 
Net deferred income tax liabilities$7,142 $11,178 
As of December 31, 2021, we had a $26.4 million U.S. federal net operating loss (“NOL”) carryover. The federal NOL has an indefinite life, but utilization within any tax year is limited to 80% of taxable income. Therefore, a valuation allowance of $1.3 million has been established to reduce the attribute balance to the amount expected to be utilized. As of December 31, 2021, we had $251.5 million of state NOL carryovers, which begin to expire in 2030. Management believes that certain of the state NOL carryovers will more likely than not expire prior to utilization. As such, a valuation allowance of $13.1 million (net of federal benefit) has been established to reduce the state attribute balance to the amount expected to be utilized before expiration. We also have $5.0 million, tax-effected, of foreign NOL carryovers at December 31, 2021.  The foreign NOLs have an indefinite life; however, management believes that benefit for certain of the foreign NOLs may not be realized. Therefore, we have established a valuation allowance of $2.3 million to reduce the carrying value of the asset related to foreign NOLs to the amount that has been determined to be more likely than not realized.
We have $0.2 million and $2.8 million of U.S. federal tax credits and tax credits in foreign jurisdictions, respectively, as of December 31, 2021. We have recognized a valuation allowance of $2.1 million for the foreign tax credits. In addition, we have $1.0 million of state deferred tax assets for which we believe recognition is not appropriate.
We have a U.S. federal and state deferred tax asset related to currency losses on intercompany loans and interest expense carryforwards. Management believes it is more likely than not that the benefit for these assets will not be realized based on timing of expected repayment of the intercompany loans. We have established a valuation allowance of $2.1 million and $4.0 million, respectively, to eliminate the carrying value of these assets.
Management assesses available positive and negative evidence to estimate whether it is more likely than not sufficient future taxable income will be generated to provide use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated is cumulative losses incurred over the three-year period ended December 31, 2021. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future earnings growth. On the basis of this evaluation, as of December 31, 2021, a valuation allowance of $25.8 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized without consideration of future earnings growth.
Management believes all remaining tax assets will more likely than not be realized. However, the amount of the deferred tax asset realized will change based on future conditions, and the amount considered realizable will be adjusted if objective negative evidence in the form of cumulative losses is no longer present allowing additional weight to be given to subjective evidence such as our projections for growth.
During 2021, the valuation allowance increased by $4.1 million, primarily due to allowances recorded against U.S. federal net operating loss carryforwards and carryforwards of disallowed interest expense which are subject to certain annual deduction limitations. The increase was partially offset by utilization of previously reserved net operating loss carryforwards in certain foreign jurisdictions.
As a result of the deemed mandatory repatriation provisions in the U.S. Tax Cuts and Jobs Act of 2017 and subsequent recognition in income of GILTI, we do not have material basis differences related to cumulative unremitted earnings for U.S. income tax purposes. However, we continue to evaluate quarterly the impact that repatriation of foreign earnings would have on withholding and other taxes. As of December 31, 2021, we have recorded a liability of $5.6 million for the anticipated withholding taxes that would be due upon repatriation of the unremitted earnings of those subsidiaries for which management does not intend to permanently reinvest all earnings.
In 2021, the Company asserted that it was permanently reinvested in certain jurisdictions for which it previously was unable to assert permanent reinvestment. Prior to the Company’s debt refinancing in 2021, the Company had recorded a liability on all unremitted earnings. However, upon completion of the debt refinancing, the Company reevaluated repatriation plans, changed its assertion for certain jurisdictions and recorded the resulting tax benefit of $2.4 million.
We are subject to U.S. federal income tax as well as tax in several foreign jurisdictions. We are also subject to tax by various state authorities.  The tax years subject to examination vary by jurisdiction.  We are no longer subject to U.S. federal examination for periods before 2017. We regularly assess the outcomes of both ongoing and future examinations for the current or prior years to ensure our provision for income taxes is sufficient.  We recognize liabilities based on estimates of whether additional taxes will be due, and we believe our reserves are adequate in relation to any potential assessments.  The outcome of any one examination, some of which may conclude during the next twelve months, is not expected to have a material impact on our financial position or results of operations.
Interest and penalties related to federal, state, and foreign income tax matters are recorded as a component of the provision for income taxes in our Consolidated Statements of Operations and Comprehensive Income (Loss). Accrued interest and penalties of $0.5 million, $0.6 million, and $1.5 million are included in other non-current liabilities as of December 31, 2021, 2020, and 2019, respectively.
The following table presents a reconciliation of the beginning and ending amounts of unrecognized tax benefits, excluding interest and penalties.
Years Ended December 31,
202120202019
Balance at beginning of year$247 $2,589 $4,609 
Additions for tax positions of prior years— 121 — 
Settlements for tax positions of prior years— — (275)
Reductions for tax positions of prior years(122)(2,463)(1,745)
Balance at end of year$125 $247 $2,589 
The reduction to unrecognized tax benefits in 2021 is related to the remeasurement of previously unrecognized tax benefits. As of December 31, 2021, the unrecognized tax benefits would, if recognized, impact our effective tax rate by $0.7 million, inclusive of the impact of interest and penalties.  Management believes that it is reasonably possible that the amount of unrecognized income tax benefits, including interest and penalties, may not decrease during the next twelve months as no statutes are expected to lapse within the period.
We operate under tax holidays in other countries, which are effective through December 31, 2026, and may be extended if certain additional requirements are satisfied. The tax holidays are conditional upon our meeting certain employment and investment thresholds. The impact of these tax holidays decreased foreign taxes by $0.2 million and $0.2 million for 2021 and 2020, respectively. The tax holidays had no impact on our 2019 foreign taxes.